Though traditionally thought of as the preserve of technical experts—lawyers, economists and accountants—the study of taxation has recently attracted growing attention, with mounting recognition that taxation is fundamentally political, and lies near the core of the relationship between states and citizens. The first, and most common, question about the politics of taxation is: what are the political barriers to more effective and equitable taxation, and how can these political barriers may be overcome? However, it is important that any discussion of the politics of taxation also consider a second question: How can the expansion of tax collection be linked to the construction of stronger fiscal contracts, thus ensuring responsiveness and accountability in the use of tax revenues? The expansion of taxation represents a transfer of wealth from private citizens to the state, but becomes publicly desirable only if it is then consistently translated in improvements in publicly provided goods and services, and broader improvements in the quality of governance. This makes it incumbent on those interested in taxation to consider not only how best to raise additional revenue, but how best to raise additional revenue in ways that increase the likelihood that new revenue will be translated into broader public benefits. It is now widely accepted that in many cases political resistance represents the most important barrier to more effective taxation in Africa—particularly with respect to the taxation of elite groups. This, in turn, reflects two broad political challenges: the expansion of taxation frequently confronts resistance from influential political and economic elites, while it has historically been very difficult to build popular coalitions in favor of taxation in contexts of limited transparency and significant distrust of taxation and the state. That said, recent research has shed growing light on the contexts in which reform is more likely, and the reform strategies that may contribute to overcoming political resistance. This has been accompanied by the growth of parallel research that has highlighted the contexts in which the expansion of taxation is most likely to spur public mobilization and demand-making—and thus the strategies that reformers might adopt in seeking to strengthen the links between revenue-raising and improvements in public services and accountability. Ultimately, it increasingly appears that the kinds of political strategies that can support more effective and equitable taxation are also likely to contribute to encouraging encourage expanded popular engagement and stronger links between taxation and public benefits. These include efforts to stress horizontal equity in tax collection, to expand transparency and popular engagement in tax debates and to more clearly link expanded revenue to specific public uses, in order to build popular support for reform. Such strategies have the potential to contribute to virtuous circles of reform in which new taxation is translated into valued public benefits; thus building popular support for the further expansion of more equitable taxation.
While Latin America has augmented its tax effort significantly since 2000, tax revenues remain below the global norm given the region’s income per capita. Indirect taxes constitute a disproportionate portion of overall revenues, a manifestation of the political and technical difficulties inherent to taxing Latin American elites. Several structural factors characterizing the region hamper revenue collection, including mediocre economic performance, a large informal sector, high income inequality, the rentier status of some economies, and weak state infrastructural power, alongside feeble tax administration agencies, among other factors. Political scientists have deployed three main paradigms for understanding tax policy outcomes and tax reform: interest-based, ideational, and institutional accounts. Interest-based accounts, centered on the political power and resources that interest groups can wield, provide a useful first approximation to understanding tax outcomes; nevertheless, this theoretical lens under-predicts the prevalence of observed tax reform in Latin America. The ideational lens is indispensable to account for the overall contours of the taxation system in the region, because tax reform was informed by the neoliberal paradigm. In recent years, moderately progressive tax policy changes have been enacted by left- and right-wing governments alike, reflecting the increasing centrality of addressing inequality (the vertical equity objective) in the realm of ideas. Democracy, qua a system of institutions geared to enhance the public interest, has not spawned the taxation systems that the median-voter theory predicts in the context of high societal inequality, however. Democracy has not fulfilled the taxation and fiscal policy expectations placed upon it. Nonetheless, structural factors may yet produce a salutary fiscal result. The recent increase in the size of the region’s middle class has translated into greater societal pressures to enhance the quality and quantity of public services, which may portend the development of a more encompassing state–society fiscal pact.
The real property tax (RPT) is a major, stable revenue source for local governments to provide basic public services. The quality, quantity and reliability of public services in a locality are key indicators of the living standards. The service responsibilities require local governments to maintain stable revenues. RPT is a tax on owning and holding land and structures on land, and RPT is a very old tax, dating back to ancient times when land and products thereof were the most important assets. RPT has been used by governments of all countries throughout history, although with huge variation in formats and ways of use. Despite numerous pitfalls in its design and administration, RPT has remained a pillar of local revenue, accounting for a high percentage of total local revenue. Thus, it is important to understand RPT and its roles in local public finance. RPT was mistakenly dubbed the worst tax, a misnomer that has caused misperception of the tax that should be corrected. RPT is one essential pillar of a modern tax system. The design and maintenance of an optimal RPT should follow six principles. The complexity of RPT is with key aspects in its administration, with the weakest link in property value assessment. Exemptions and limitations add to the complexity of RPT, causing unintended consequences. From a panoramic view, RPT has adapted to changes of the society and economy; it still holds prospects as an optimal tax and remains the cornerstone of accountable and sustainable local public finance.
Alessandro Del Ponte, Reuben Kline, and John Ryan
Behavioral economics is an interdisciplinary field of inquiry that incorporates insights from psychology to enrich standard economic models which assume perfectly rational individuals. Empirical research in behavioral economics typically employs incentivized experiments that use economic games with real money on the line. In these experiments, subjects are awarded financial payoffs based on the decisions they make (either individually or as part of a group) in an institutional context designed by the researcher. Behavioral economics is well suited for political science because behavioral economics is interdisciplinary by nature and political science is not bound by any particular research paradigm. At the same time, the method is still novel to many political scientists despite many years of its use to study political topics in a variety of research areas. What unites the application of the method to these areas is the explicit consideration of conflict. For instance, scholars have uncovered social conflict between groups (e.g., voter polarization in the United States) using behavioral games as measures, or they have designed experiments around elections to test theories of candidate and voter behavior. Because of the clear financial incentives, economic experiments are especially useful for studying people’s actual preferences in areas such as redistribution as opposed to their stated preferences. Finally, the method can be used to design institutions that will help overcome conflict over scarce resources. In sum, the strengths of behavioral economics include: (a) the ability to vary institutional contexts; (b) clear incentives that ensure valid measures of preferences; (c) direct measures of behaviors instead of stated intentions which could be confounded by outside pressures such as social desirability.
The battle over state redistribution, and the means to pay for welfare transfers, lies at the heart of contemporary political economy. This has been one of the central plinths of political science research on the advanced industrial democracies, and we now have a good understanding of the dynamics of spending and taxation in these countries, rooted in the power of the left and labor movements, together with the embedded liberal compromise. These explanations, however, struggle to explain tax and spending outcomes across Latin America. This is largely because the pressures of globalization, rather than embedded liberalism, drive efficiency concerns in Latin America; across the region, the left often behaves in unanticipated ways, and redistribution comes in many forms. These effects are compounded by the power of business interests across the region and the heterogeneity of voter preferences when it comes to spending and taxation. More research is needed on both the macro and micro level dynamics of taxation and social spending in Latin America.
Emizet F. Kisangani
The fundamental challenge facing social engineers is to project authority. State building is a process that establishes political order over time. As a top-down strategy, it emerges as an antidote to state collapse. The success of a state is in its capacity not only to provide national security while controlling the means of violence, but also to supply other public goods funded through direct taxes on citizens, who are supposed to make their rulers accountable. The absence of such state capacity perhaps explains the unending political crisis that plagues many post-colonial states, because they tend to control populations rather than territories. Although some efforts have been made toward state building, the state remains fragile in many post-colonial states. Territorial control is limited, and private taxation continues. Local tensions based on ethnic affinities rather than national allegiance remains intense. The analysis of Congo-Kinshasa illustrates these assertions by contrasting three successive periods: the Congo Free State (1885–1908), the Belgian Congo (1908–1959), and the post-colonial period (1960–2019). Of these three periods, only the second entity was able to professionalize the military for state-building purposes. The emphasis on this top down approach in state building overlooks other configurations that postcolonial state builders should contemplate. Societies have historically compensated for the failure or absence of statehood through a number of mechanisms that include, among others, councils of elders and secret societies that may not be difficult to reconcile with the demands of the modern state. The search for this bottom-up approach to state building perhaps explains so many internal conflicts in most post-colonial states as marginalized groups intend to insert themselves into the political system that has excluded them from power.
Robert Harmsen and Anna-Lena Högenauer
A founding member state of the European Union (EU) and a major European institutional center, Luxembourg has been a consistently strong supporter of the further development of European integration, often acting to facilitate compromises at critical moments. Its European policy rests on a broad political consensus and enjoys strong support in national public opinion. However, the country has also defended key national priorities on occasion, such as the interests of the steel sector in the early phases of European integration or its taxation policy in the early 21st century. Historically, this openness toward cooperation can be explained by reference to Luxembourg’s long experience of cooperation with neighbouring countries. Luxembourg was a member of the Zollverein (German Customs Union) in the 19th century and formed an economic union with Belgium after the First World War. European policymaking in Luxembourg is characterized by a pragmatic and informal policy style. The comparatively limited size of the national bureaucracy allows for an ease of internal communication and coordination. The typically long tenures and broad remits of national officials coupled with their multilingualism facilitate their integration into European policy arenas, where they often play pivotal roles. Luxembourgish society is further highly “Europeanized.” As the country became one of the largest producers of steel in the world, it attracted high levels of immigration from other European countries. The economic transformation of the country from the 1980s onward—moving from an industrial economy to a service-based economy centered on the financial sector—would not have been conceivable without the parallel development and deepening of European integration. In 2018, foreigners made up 48% of the resident population of the country, with citizens of the other 27 EU member states accounting for around 85% of that foreign community. The country’s labor force is further heavily dependent on cross-border workers from the three surrounding countries. This unique national situation poses a range of distinctive policy challenges regarding both the national political system and the wider governance of an exceptionally dense network of cross-border relationships.